Fund Management

Isn't It Time For A Funds Due Diligence Data Repository?

Eric Dickinson, 2 April 2019


Due diligence tests on funds and other investments are important, so how can this essential task be made easier?

The need for reliable due diligence data on funds is important at a time when wealth advisors are bombarded with new offerings and sales marketing campaigns. Suitability requirements from regulators add to the pressure. Is there a need for a convenient holding centre for due diligence information? WHIreland, the UK-based wealth manager, is using such a system, for example. 

Eric Dickinson, an independent consultant who has worked in the wealth and investment sector, gives his views. 

The editors are pleased to share these views; they do not necessarily endorse all contributors’ opinions and invite readers to respond. Email

Fund providers’ tender teams are, more than ever before, being overburdened with requests for information and requests for proposals. This highlights the ever-increasing need for available due diligence information, and for a central repository to hold a golden source of fund due diligence data, to enable instant assessments on the fund and the company providing the fund.

Fund buyers are being overwhelmed with the sheer volume of data that is presented to them by way of fact sheets, presentations, prospectuses, research and due diligence reports - all in different forms presenting information in an inconsistent manner - often highlighting the areas we already know, and not answering the questions we have in an unambiguous manner. Comparisons become impossible to make.

In a recent article, the benefits of an industry standard “golden-source” data repository of funds due diligence information were discussed, including:

-- A data repository making information accessible on all funds;
-- A repository answering the questions generally raised in a due diligence process and collated by a broad spectrum of wealth managers and advisors; 
-- A database enabling ease of comparison of different funds by presenting information in a consistent and unambiguous manner; 
-- Information maintained by the fund managers and providers; 
-- Technology doing the ‘heavy lifting’ avoiding the need to manually collate the necessary information; and
-- A documented date and time stamped audit evidencing that fund buyers have undertaken full due diligence on a fund prior to transaction. 

The above benefits lead to a more efficient industry, reducing costs for both fund buyers and fund providers and ultimately reducing costs for the investor.

The regulator’s desire to see better levels of understanding and hence transparency on opaque investment products is a further reminder of the need for easily accessible information that can be used as part of a full and thorough due diligence process. An industry standard repository helps the market meet this need in a cost effective and efficient way. 

A technology-based repository can further improve on a process, where historically the issuing of bespoke RFP documents has been the modus operandi, by offering a hub of due diligence information that can provide consistent due diligence data on funds across providers.  

Historically, due diligence has meant trawling through the small print of a lengthy prospectus, reviewing multi-page standard documentation from the fund providers, often leading to more questions than answers. A lot of time is needed on one fund to fully understand how it operates and the risks it can take to achieve its performance. Having a better level of understanding also helps prepare for fund manager meetings.

The due diligence data set includes both static data, that changes very rarely, and volatile data, often key data that affects risk and which changes frequently or regularly. Therefore, the need exists for volatile data alerts, whereby the fund provider keeps the fund buyer updated on the risk pertaining to volatile data as it changes - such as changes to fund liquidity and leverage, the fund management team or to whether the fund can borrow or go short on cash

Chloe Platts at Kirk Rice LLP, one of a growing number of users, says: “I am delighted at the streamlining affect that our recently-implemented data repository has brought to our funds selection and due diligence process. At the touch of a button we can now access all the key and up-to-date information on a huge range of funds. This includes information not available from other sources, and it enables our discussions with the fund providers to be well informed and targeted, meaning that we can unambiguously have any concerns quickly addressed.”

Automated alerts may be configured by the fund buyer to notify them of key fund information changes thereby avoiding missed updates from the fund provider that may prove critical, as well as being informed of important changes affecting fund risk and that are not provided as a matter of course by the fund provider. 

“Immediacy of change notification, particularly on important risk-based data, often hidden under the covers, is vital for ongoing due diligence. The alerts facility is a market first and a vital and efficient way of communication between the fund provider and fund buyer”, Amery Thomas of AssetQ, has said.

It is clear that the industry needs to use a standard repository of fund due diligence data, to ensure that properly evidenced and complete due diligence can be cost effectively and efficiently undertaken.

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